Government Intervention How much should we have?

Types of economy Centrally Planned Mixed Economy Free Market An economy where the government runs all production and allocates an equitable amount of resources to all citizens An economy where many products and services are provided by private business. Some essential services are provided by government. An economy where most goods and services are provided by private business

Add other factors USA Soviet Russia UK Communism Liberal democracies Capitalism Least freedom Some freedoms Complete freedom Most opportunities for profit making Limited opportunities for making profit Good opportunities for making profit Most support for weak or vulnerable Least Support for weak or vulnerable Some support for weak and vulnerable Little redistribution of income Most redistribution of income Some redistribution of income

What is the government for? Have you got these? Correct market failure- when markets don’t provide the best allocation of resources. To distribute income and wealth more fairly To guide the performance of the UK domestically and internationally Provide a frame work of laws to promote a civilised culture

Government Policy - How can the government intervene? Legislation eg… Regulation of monopolies eg… Provide goods and services eg… Financial intervention – indirect tax on demerit goods will.., Taxes and benefit payments will…, subsidy will.. Providing advice and information eg cigarettes have… , health screening for…, nutritional information on…, anti speeding campaigns so… Economic Support eg for unemployed so…, change interest rates so.., trade agreements so…

Taxes in the UK I T CT VAT RT In T C GT NIC

The Impact of government on economic agents A tax is a levy placed on economic agents by the government. Progressive taxes take a higher % as an individual’s income rises Regressive taxes take a smaller % as an individual’s income rises Direct taxes make the individual person liable eg Indirect taxes make the supplier liable eg

Micro Impact of government intervention Income tax is direct and progressive which means… £150+ at 45% £32- 150k at 40% (tax on £118k) £8-32k 20% (tax on £24k) £0-8k tax free

Winners and losers with progressive taxation To what extent are progressive tax rates good for the population of the UK. Point of the question with definitions One hand Other hand Conclusions

Benefits and drawbacks of our income tax system

Tax Revenue- which ones pay? Approximate % contribution Income tax 33 NICs 20 VAT 18 Corporation tax 10 Excise duty Council tax 5 Business rates Total 500bn Conclusions and comments? To what extent are we targeting taxation correctly in the UK?

Government Spending – where does our money go? Spending area % Social Protection 28 Health 22 Education 13 Law 6 Defence 5 Debt interest Industry and agric 4 Transport housing 3 Total 600BN Conclusions and comments? To what extent are the government spending wisely in the UK?

Other Government Interventions Control of freedom – laws prevent people from doing what they would like eg age restriction, anti social behaviour, crime Business have legal regulation and restrictions too eg H&S, control of monopoly but also the imposition of tax and subsidy Trade agreements make trade and global business possible Provision of information and advice to help people/ business

Government Failure When the government, by their actions, make a market failure worse not better eg create problems that did not exist before, or spend large amount of money and achieve nothing. How? Political self interest – wanting to make their mark not do the right thing Quick fix is more important than the right fix. A term in office last for 4 yrs so… Imperfect information means… Unintended consequences – a law or intervention might be intended to elicit one response from customers. They might act in unexpected way, find loop holes eg progressive tax law designed to be fair to the wealthy means they… Administration costs make intervention hard to manage eg Tax credits Conflicting objectives mean…